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October MMT Update: Positive News (But Priced In)

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How to Cut Through the Market Noise: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • October Market Multiple Table – Positive News But Priced In

U.S. futures are higher on dovish-leaning comments by the Fed’s Kugler overnight while global shares declined broadly in sympathy with a near-10% drop in Chinese shares after the latest government stimulus efforts disappointed.

Economically, German Industrial Production rose 2.9% vs. (E) 0.8% in August, helping easing EU growth worries while the NFIB Small Business Optimism Index rose to 91.5 but narrowly missed estimates of 91.7.

There are no notable economic reports today, however several Fed officials are scheduled to speak: Bostic (12:45 p.m. ET), Collins (4:00 p.m. ET), and Jefferson (7:30 p.m.). Based on the market’s positive reaction to Kugler’s comments in the pre-market, more dovish commentary has the potential to fuel a further relief rally today while a hawkish tone would likely weigh on stocks.

Finally, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and given the hawkish money flows in the wake of last week’s ISM data and September jobs report, weak demand at the auction could send yields to new highs and further pressure equity markets.

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How to Cut Through the Market Noise

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How to Cut Through the Market Noise: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • How to Cut Through the Market Noise
  • Weekly Market Preview:  Inflation and Earnings
  • Weekly Economic Cheat Sheet:  CPI on Thursday is the Key Report

Futures are moderately lower following underwhelming economic data and as investors continue to wait for the Israeli response to Iran.

Economically, German Manufacturers’ Orders and Euro Zone retail sales both missed estimates.

Geopolitically, investors are still awaiting the Israeli response strike to Iran and that lingering uncertainty is further boosting oil and weighing on futures.

Today the calendar is quiet as there is just one economic report, Consumer Credit (E: $13.5B) and two Fed speakers, Bowman (1:00 p.m. ET) and Kaskari (1:50 p.m. ET) but none of that should move markets.  Instead, focus will be on geo-politics as investors anxiously await the Israeli response strikes on Iran and whether they hit key infrastructure (nuclear sites, energy sites) or not will determine the impact on markets.

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Jobs Report Preview (Important for Fed Rate Cut Expectations)

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Jobs Report Preview: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Jobs Report Preview (Important for Fed Rate Cut Expectations)
  • EIA Analysis and Oil Market Update

Futures are modestly lower on continued elevated geo-political tensions and following mixed economic data.

Geopolitically, markets await the response from Israel to Tuesday’s attack and recent reports are stating it will be more aggressive than in April (increasing escalation risks).

Economically, EU and UK Service PMIs were mixed but both stayed above 50 (and economic positive).

Today focus will remain on economic data and the two key reports are Jobless Claims (E: 225K) and the ISM Services PMI (E: 51.5).  If the reports are close to in-line with expectations, look for a bounce in stocks as that will imply a still solid economy (soft landing) with looming Fed rate cuts (50 bps between now and year-end).

Regarding geopolitics, Israel’s response attack could come at any minute and the key here is whether it’s an aggressive attack on key Iranian military or oil infrastructure, or not.  If so, that could lead to further escalation (negative for the market).  If not, we likely have a repeat of April (where the situation cools down).  Regardless, watch oil.  If it spikes numerous percent (say 3% or more) that will reflect real, elevated geo-political tensions.

Sevens Report Quarterly Letter Delivered

Our Q3’24 Quarterly Letter was delivered to subscribers. We use our strength (writing about the markets) to help you:

  • Save time (an average of 4-6 hours per quarterly letter)
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You can view our Q2 ’24 Quarterly Letter here. To learn more about the product (including price) please click this link.

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Futures contracts tied to the index are telling a different story

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Futures contracts tied to the index are telling a different story: Tom Essaye Quoted in Market Watch

Why Wall Street’s ‘fear gauge’ could spike again around the election

But futures contracts tied to the index are telling a different story, and it’s one worth paying attention to, according to Tom Essaye, founder of Sevens Report Research.

The October VIX contract is trading at a premium to the November contract, an unusual development known to futures traders as “backwardation.” Typically, the VIX futures curve exhibits a smooth upward slope. But for most of this year, there has been a kink along this part of the curve.

According to Essaye, the inversion is notable not so much for its degree — the October contract was just 0.3 points above its September sibling as of early Thursday — but for its staying power. This segment of the curve has been in backwardation since the October contract started trading in February.

Also, click here to view the full MarketWatch article published on September 26th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Economic Implications of the Port Strikes

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What’s in Today’s Report:

  • Will the Port Strike Increase Hard Landing Chances
  • Fed Chair Powell’s Commentary Takeaways (Less-Dovish)

Futures are little changed this morning as investors weigh a favorable decline in EU inflation against news that a dockworkers strike has commenced at East Coast ports.

Economically, the Eurozone Manufacturing PMI fell to 45.0 vs. (E) 44.8 while the EU HICP Flash (their CPI) fell 0.4% to 1.8% vs. (E) 2.0% in September. The sub-2% headline was notably the first below-ECB-target print since 2021.

Looking into today’s session, there are several domestic economic data points that will be in focus including, in order of importance: The ISM Manufacturing PMI (E: 47.0), JOLTS (E: 7.7 million), and Construction Spending (E: -0.3%).

Additionally, there is one Fed speaker on the calendar for the late morning: Bostic (11:00 a.m. ET).

Bottom line, investors will be assessing what the market implications of the East Coast port strike will be as the situation develops today while also looking for more “goldilocks” economic data and a less-hawkish tone from Fed officials in order for the early week stock market gains to hold.

 

Sevens Report Quarterly Letter Delivered Today

Our Q3’24 Quarterly Letter will be delivered to subscribers today. We use our strength (writing about the markets) to help you:

  • Save time (an average of 4-6 hours per quarterly letter)
  • Show you’re on top of markets with impressive, compelling market analysis.

You can view our Q2 ’24 Quarterly Letter here. To learn more about the product (including price) please click this link.

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Why the Next Four Weeks Are So Important

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Investor Sentiment Update: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why the Next Four Weeks Are So Important
  • Weekly Market Preview:  Does Data Stay Goldilocks?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday, ISM PMIs This Week

Futures are slightly lower as markets digest last week’s rally ahead of a busy week of economic data.

Geo-politically, Mid-East tensions rose further as Israel struck Houthi targets in Yemen, expanding its current campaign.  However, for now this is not impacting stocks.

Economically, Chinese manufacturing and non-manufacturing PMIs underwhelmed, raising expectations for even more stimulus (and boosting Chinese stocks).

There are no important economic reports today (they come later this week) so the most important event today is Powell’s speech at 1:55 p.m. ET.  He’s unlikely to say much new (given the FOMC decision was less than two weeks ago) but a dovish reiteration of policy will likely continue to boost markets in the near term.

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Investor Sentiment Update

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Investor Sentiment Update: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Sentiment Update: Investors Aren’t Wildly Bullish, But They Are Complacent
  • August Durable Goods Come in Better-Than-Feared
  • Jobless Claims Point to Further Resilience in the Labor Market

U.S. stock futures are slightly lower this morning as more positive stimulus news out of China is being offset by a stronger yen following Japanese election results.

The PBOC cut 7-day reverse repo rates to 1.5% from 1.7% as well as lowered bank reserve ratios by another 50 bp which sent stocks in Asia solidly higher with some regional benchmarks advancing the most since 2008.

In Japan, Shigeru Ishiba’s election victory to become the nation’s next Prime Minister spurred a more than 1% rally in the yen as he is a monetary policy hawk. The yen strength is weighing on the global carry trade, specifically U.S. tech stocks in the pre-market.

Looking into today’s session, the most important potential catalysts hits before the bell with the Fed’s preferred inflation gauge, Core PCE (E: 0.2% m/m, 2.7% y/y) due out at 8:30 a.m. ET.

Additionally, the latest Consumer Sentiment Report (E: 69.0, 1-Yr Inflation Expectations: 2.7%) will be released at 10:00 a.m. ET and there is one Fed speaker in the early afternoon: Bowman (1:15 p.m.) but Fed speak has been benign this week and is likely to stay that way today.

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Is the VIX Signaling Another Volatility Spike is Coming?

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Is the VIX Signaling Another Volatility Spike is Coming?: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Is the VIX Signaling Another Volatility Spike is Coming?

Futures are sharply higher thanks to strong tech earnings, more Chinese stimulus and more global rate cuts.

Micron (MU up 15% pre-market) beat earnings and raised guidance and that’s helping futures rally this morning.

An FT article promised even more Chinese stimulus is coming and that is boosted Asian markets and U.S. futures.

Today there is potentially important economic data and the key reports are:   Jobless Claims (E: 224.5K), Durable Goods (E: 0.1%) and Final Q2 GDP (E: 3.0%).  In-line to better-than-expected readings will help further fuel this rally while weak data, especially in claims and Durable Goods, will increase hard landing fears (and weigh on stocks).

On the Fed front, there are multiple speakers today with most speaking at a Treasury Market Conference (there were so many that it’d take up the whole pre-seven look if we listed them all). The most notable is Powell (9:20 a.m. ET) but don’t expect any of the comments to move markets as the Fed told markets last week what it’s going to do and until the outlook for another 50 bps of easing changes, Fed speak shouldn’t move markets.

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Sevens Report Co-Editor Tyler Richey Quoted in S&P Global

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Rate-cut expectations played a major role in the stock market rebound: Sevens Report Co-Editor Tyler Richey Quoted in S&P Global

Stocks surge to all-time highs; market questions if Fed cuts can sustain rally

“Rate-cut expectations played a major role in the stock market rebound off the early August pullback, but only because the increasingly dovish Fed policy expectations for sooner-and-deeper rate cuts were accompanied by encouraging economic data that helped ease the suddenly urgent fears of an imminent recession in the wake of the July jobs report,” said Tyler Richey, a co-editor with Sevens Report Research.

Rate cut expectations will weigh heavily on the stock market through the end of 2024, primarily as they relate to the outlook for economic growth, said Richey with Sevens Report Research.

“Soft landings are historically elusive, and the Fed has notably never pulled one off after a deep and prolonged yield curve inversion like we have seen in the Treasury market since the summer of 2022,” he said. “Using history as a guide, we are in a late cycle environment and very likely closer to seeing a lasting market top established than a new leg higher in a sustainable bull market.”

Also, click here to view the full S&P Global article published on September 20th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Tyler Richey of the Sevens Report highlights a market breadth concern

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Tyler Richey of the Sevens Report highlights a market breadth concern and is quoted in MarketWatch

A technical concern suggests upside momentum is fading

Tyler Richey of the Sevens Report highlights a market breadth concern: there are more stocks trading below their 200-day average than their 50-day average.

“In simple terms, a situation where there are more stocks below their 200-day MA than their 50-day is a bearish one as in a healthy market environment, there should consistently be more stocks above their 200-day MAs than 50-day MAs,” Richey says. Another concern is the NYSE advance-decline line declined last week even though the S&P 500 hit record highs.

Also, click here to view the full MarketWatch article published on September 24th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.